"The merger agreement provided for the payment of bonuses prior to the deal closing," Derris said. "The timing of those payments was determined by the compensation committee of the Merrill Lynch board consistent with the merger agreement.”

The merger agreement, which was signed with Bank of America (NYSE: bac) in mid-September, granted the authority to pay bonuses of as much as $5.8 billion.

But officials in Cuomo's office aren't so sure. At issue is a Merrill Lynch board meeting on Nov. 11 where Thain asked the board to pay Merrill executives $3.2 billion in bonuses before the end of the year. Later, Merrill disclosed it had lost $15 billion.

People close to Cuomo's investigation say that if Thain moved up the timing of the bonuses, while knowing about future losses, he may be in violation of the Martin Act.

Also, these people say, Thain didn't have to pay bonuses of that magnitude. In fact, he could have not paid bonuses.

In addition, Bank of America executives have said they were unaware that Thain had moved up the timing of the bonus payments to the Nov. 11 meeting. Historically, Merrill paid its bonuses after the end of the year.

The investigation remains far from complete. There's lots of conflicting testimoney and Cuomo's office may just decided to do nothing other than issue guidelines on compensation.

Also, Bank of America is under scrutiny as well. Cuomo's office is investigation when the investment bank should have disclosed to its shareholders that it went to the government for bailout money after it learned of the steep losses at Merrill in mid-December.